Kerala Plus Two Economics Question Paper March 2020 with Answers

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Kerala Plus Two Economics Previous Year Question Paper March 2020

Answer any 10 questions from 1 to 12. Each carries 1 score. (10 × 1 = 10)

Question 1.
The famous book “General Theory of Employment, Interest and Money” was written by
a) Adam Smith
b) J.M. Keynes
c) Paul A. Samuelson
d) David Ricardo
Answer:
b) J.M. Keynes

Question 2.
In a Centrally Planned Economy all important economic activities are organised by
a) Government
b) Market
c) Both government and market
d) None of these
Answer:
a) Government

Question 3.
Which of the following causes rightward shift of the supply curve?
a) Rise in input price
b) Technological progress
c) Imposition of unit tax
d) None of these
Answer:
b) Technological progress

Question 4.
Total revenue curve under perfect competition is
a) Downward sloping from left to right
b) Upward rising from the point of origin
c) Parallel towards X axis
d) Parallel towards Y axis
Answer:
b) Upward rising from the point of origin

Question 5.
Financial year in India
a) 1 January to 31 December
b) 1 July to 30 June
c) 1 April to 31 March
d) 1 October to 30 September
Answer:
c) 1 April to 31 March

Question 6.
Which of the following is not a feature of capitalist economy?
a) Private ownership of the means of production
b) Profit motive
c) Planning mechanism
d) Price mechanism
Answer:
c) Planning mechanism

Question 7.
Which of the following represents budget line equation?
a) P₁ X₁ + P₂ X₂ = M
b) P₁ X₁ + P₂ X₂ < M
c) P₁ X₁ + P₂ X₂ > M
d) None of these
Answer:
a) P₁ X₁ + P₂ X₂ = M

Question 8.
Freeentryand exitof firms under perfect competition ensures
a) Super-normal profit
b) Loss
c) Normal profit
d) None of these
Answer:
c) Normal profit

Question 9.
Under monoploy market situation if marginal revenue is positive.
a) e_D = 1
b) e_D > 1
c) e_D < 1
d) e_D = 0
Answer:
b) e_D > 1

Question 10.
In the equation C = C + cY, C represents
a) Autonomous Consumption
b) Marginal Propensity to Consume
c) Marginal Propensity to Save
d) Consumption Function
Answer:
a) Autonomous Consumption

Question 11.
Which of the’following does not include in Revenue Receipt?
a) Tax Revenue
b) Recovery of Loans
c) Grants in aid from foreign countries
d) Dividends on investment made by Government
Answer:
b) Recovery of Loans

Question 12.
Which of the following is not included in the Current Account of Balance of Payments?
a) Trade in goods
b) Trade in services
c) Investments
d) Transfer payments
Answer:
c) Investments

Answer any 5 questions from 13 to 18. Each carries 1 score. (5 × 2 = 10)

Question 13.
Complete the schedule given below:

Labour	0	1	2	3	4	5	6
Total Product	0	3	10	18	24	29	33
Marginal Product
Average Product

Answer:

Labour	0	1	2	3	4	5	6
Total Product	0	3	10	18	24	29	33
Marginal Product	–	3	7	8	6	5	4
Average Product	–	3	5	6	6	5.8	5.6

Question 14.
Classify the following into microeconomics and macroeconomics: Economic Growth, Individual Demand, General Price Level, profit of Firm.
Answer:

Micro Economics	Macro Economics
Individual demand	Economic growth
Profit of a firm	General price level

Question 15.
Distinguish between marginal propensity to consume and marginal propensity to save.
Answer:
A certain percentage of increase in income will go as consumMion. This protion is known as MPC. The
rest is known as MPS.
MPC = \(\frac{\Delta C}{\Delta Y}\)
MPC = \(\frac{\Delta S}{\Delta Y}\)

The ratio between the change in consumption to change in income is known as MPC. The proportion between change in savings to change in income is known as MPS.

Question 16.
Define Oligopoly market. List any two ways by which firms in Oligopoly market behave.
Answer:
Oligopoly is known as competition among firms Firms act like these two features in the market which are:

1. I nterdependence of firms
2. Products may be homogeneous or differentiated.

Question 17.
Distinguish between normal profit and super- normal profit.
Answer:
When a firm’s total revenue are equal to its total costs in a market, this situation is known as normal profit. The profit earned by the firm over and above the normal profit is known as super normal profit.

Question 18.
Distinguish between balance of payments and balance of trade.
Answer:
Balance of payment is the complete record of the financial transaction made between a country and the rest of the world. Balance of trade is the difference between the visible export and visible import of a country with the rest of the world.

Answer any 6 questions from 19 to 25. Each carries 3 score. (6 × 3 = 18)

Question 19.
Draw the outline of a production possibility frontier and mark the following situations:
i) Fuller utilization of resources
ii) Under utilization of resources
Answer:

Any point lying on the production possibility curve shows the efficiently utilised resources point lyinginside the PPC implies under utilization of resources.

Question 20.
Identify any three features of indifference curve.
Answer:
Three features of indifference curve are given below.

1. Indifference carves are convex to origin.
2. Higher indifference curves show higher levels of satisfaction.
3. It do not interest each other.

Question 21.
Expain the three laws of returns to scale.
Answer:
There are three laws of returns to scale which are given below.

1. Increasing returns to a scale (IRS)
   If a proportionate increase in all the inputs leads to more than proportionate change in output. It is the stage of IRS.
2. Constant returns to a scales (CRS)
   If proportionate increase in inputs leads to proportionate increase in output, it is called constant returns to scale.
3. Decreasing Return to Scale
   If a proportionate change in inputs leads to less than proportionate change in output is called diminishing returns to a scale (DRS). This laws of returns can be expressed in figure.

Question 22.
Recently the government of India have decided to restrict the export of onion towards foreign countries. Diagrammatically illustrate the immediate effect of this decision on the equilibrium priceand quantity of onion in India.
Answer:

The immediate effect of this decision leads to decrease in equalibrium price decrease and increase in equilibrium quantity increases in the market.

Question 23.
Compare monopoly and monopolistic competition based on the features given below:

Features	Monopoly	Monopolistic ComDetition
Number of firms
Entry of firms
Nature Profit in the long-run

Answer:

Features	Monopoly	Monopolistic ComDetition
Number of firms	Single	Fairly large
Entry of firms	No	Freedom of entry
Nature Profit in the long-run	super Normal	Normal

Question 24.
Distinguish between Public goods and private good Write an example of each.
Answer:
Public goods are provided by the goernment for the Common use. They are non-rivalary and non-excludable. eg: Road, National defence Private goods are rival and excludable. For purchasing private goods, we have to pay price.
eg: car, cloths and food items etc.

Question 25.
Explain the concept of ‘Paradox of Thrift’.
Answer:
If all the people of Jhe economy increases the proportion of income they save, the total value of saving in the economy will not increase, it either decrease of remain unchanged.

Answer any 4 questions from 26 to 30. Each carries 4 score. (4 × 4 = 16)

Question 26.
a) Distinguish between concept Nominal GDP and Real GDP. (1)
b) Which one is considered as a better concept for comparing the GDP among countries? (1)
c) Name the index representing the raito of Nominal GDPto Ral GDP. (1)
Answer:
a) Ifthe money value of final goods and services are calculated on the basis of current year price it is known as Nominal GDP.
If the money value of final goods and services are calculated on the basis of base year price. It is known as Real GDP.

b) Real GDP

c) GDP Deflator

Question 27.
Explain the determination of equilibrium national output and aggregate demand in a two sector economy with the help of a diagram.
Answer:

Question 28.
The diagram showing short – run Average Cost (SAC) Curve is given below:
a) I ncorporate Average Variable Cost (AVC) Curve and Short-run Marginal Cost (SMC) Curve in the diagram. (2)
b) Identify the relationship between Short -run Marginal Cost (SMC) and Short-run Average cost (SAC). (2)

Answer:
(a)

b) I) When SAC s deaeasng SMC curve will be be4ow Ue SAC.

Question 29.
Market determined price of paddy in Kerala is Rs. 2. per Kilogram. But government intervenes in the market and sets Rs. 26 per Kilogram as its minimum price with a veiw to protect the interests of paddy farmers.
a) By what name this policy of government is known? (1)
b) Analyse the consequences of this policy with the help of a diagram. (3)
Answer:
a) Price Floor/Minimum Suppport Price b)
b)

The government will intervene in the market and fix P, as floor price. This floor price will be higher than market determined price. The fixation of floor price will lead to excess supply. The excess supply situation is countered by the government through procurement.

Question 30.
Diagrammatically analyse the short -run equilibrium of a monopoly firm by using total revenue curve and total cost curve.
Answer:

Under monopoly a firm will produce that level of output where profit is maximised. This is the output level that satisfied the following conditions.

1. TR should be greater than TC
2. The vertical distance between TR and TC should be minimum.

Answer any 2 questions from 31 to 33. Each carries 5 scores (2 × 5 = 10)

Question 31.
a) Define foreign exchange market. Identify any two major participants in foreign exchange market.(2)
b) Distinguish between flexible exchange rate and fixed exchange rate. (2)
c) List any two merits of flexible exchange rate. (1)
Answer:
a) The market in which national currenciess arte traded for one another is known as foreign exchange market. Commercial banks and foreign exchange brokers are two majour participants in foreign exchange market.

b) Flexible exchange rate. It is also known as floating exchange rate determination. Here the exchange rate is determined by the forces of demand and supply of foreign exchange. The central bank has no role in the determination of exchange rate and no transaction in the official reserve account.

Fixed exchange rate
Under this system the exchange rate will be determined by central bank. If there occurs a change in exchange rate the central bank will intervene in the market to fix it to the already determined exchanged rate.

In a country where there is fixed exchange rate I the change in exchange rate occurs due to delibrate action by the government or by the central bank.

c) Credibility and automatic stabilisation are two merits of flexible exchange rate.

Question 32.
a) Identify any four features of a perfectly competitive market.
b) Diagrammatically explain the profit maximization of a firm in the short- run under perfect competition.
Answer:

1. Large number of buyers and sellers.
2. Homogeneous product
3. Freedom of entry and exit
4. Perfect knowledge’about the market.

b) Under perfect competition, there are 3 conditions of profit maximisations.
1) Price most be equal to MC or (MR = MC)

2) MC must be non decreasing at equilibrium.

3) Price must be great than or equal toAVC (PAVC)

Question 33.
a) Identify the formulae for calculating revenue deficit, fiscal deficit and primary deficit. (3)
b) Suggest any two measures for reducing fiscal deficit. (2)
Answer:
a) Revenue Deficit = Revenue expenditure – Revenue Receipts
Fiscal Deficit = Total expenditure – (Revenue receipts. Non debt creating captial receipts)
Primary deficit = Fiscal deficit – net interest Liabilities.

b) i) Reduces government expenditure.
ii) Increase public revenue.

Answer any 2 questions from 34 to 36. Each carries 8 scores. (2 × 8 = 16)

Question 34.
a) Define price elasticity of demand. Analyse any two factor determining price elasticity of demand for a commodity. (3)
Answer:
The degree of responsiveness of demand due to a change in price is known the price elasticity of  demand (e_D). Nature of the goods and availability of Close substitutes are the two factors determining price elasticity of demand for a commodity.

b) Draw three constant elasticity demand curves and mark the value of price elastity of demand on each of them. (3)
Answer:
Three constant elasticity demand curves are given below.
i) Perfectly inelastic demand curve

Even if the price increase or decrease demand will be same. Then demand is said to be perfect’y inelastic.

ii) Perfectty elastic demand (e_D = ∝)
If a very small change in price leads to infinite change in demand it is the case of perfectly elastic demand.

(iii) Unity elastic demand

c) When the price of a commodity falls from Rs. 6 to Rs. 4 per unit, its quantity demanded rises from 40 units to 50 units. Calculate the price elasticity of demand. (2)
Answer:
price elasticity of demand: = \(\frac{p_o}{q o} x \frac{\Delta q}{\Delta p}\)
= \(\frac{6}{40} \times \frac{10}{2}=\frac{60}{80}\) = 0.75

Question 35.
a) Explain the product method and expenditure method of calculating gross domestic product.(2)
b) Discuss any two limitations of using gross domestic product as an index of welfare of a country. (2)
Answer:
a) Product Method Product method is also known as the value added method and outpad’method. GDP according to product method is the sum of the gross value added by the entire production units in the economy. If there are N firms in an economy, the GDP = sum total of the gross value added of all the firms in the economy
GDP = GVA₁ + GVA₂ + ……… + GVAN
there fore GDP = \(\sum_{i=1}^N \mathrm{GVA}_i\)
Here GDP is calculated on the basis of market price.
GDP_MP = \(\sum_{i=1}^N \mathrm{GVA}_i\)

Expenditure method:
This method is an alternative way to calculate the GDP and it looks at the demand side of the production. The expenditure method estimates national income by measuring final expenditure on gross domestic production. Consider firm T in the economy firm T can make the final expenditure on final goods on the following accounts.

1. The final consumption expenditure on the goods and service produced by the firm (c).
2. The final investment expenditure, incurred by other firms to purchase capital goods produced by firm ‘l’ (l)
3. The expenditure that the government makes on the final goods and services produced by firm ‘i’ (G_i)
4. The export revenues that firm ‘i’ earns by selling its goods and services abroad (X_i)
   Therefore GDP_MP = C + I + G + (X – M)

b) There are some limitations of GDP as an index of welfare of a nation which are given below.

1. GDP.and externalities The measure of externalities is not included in GDP. So GDP is not a good measure of economic welfare.
2. GDP and non-monetary exchanges. Subsistance production of an economy is not included in the calculation of GDP so GDP does not reveal the actual income in an economy.
3. Distribution of GDP is not uniform As GDP increases welfare may not increase. So in this situation the increase in GDP is not a good indicator of economic welfare.

Question 36.
People desire to hold money balance mainly for two motives. Explain these two motives.
Answer:
People like to hold money in the form of cash, people desire to hold money balance mainly for two motives which are given below.
i) Transactions motive: It is defined as the desire of people hold cash in order to make transaction. The number of times a unit of money changes hands during a period is called velocity of circulation of money. As the volume of GDP increases transactions demand for money will also increase.
\($M_T^d=K P Y$\)
PY = NominalGDP
P = General price level
Y = Real GDP
The transactions demand for money has a positive relationship with GDP.

ii) Speculative motive
In order to make profits from the p urchase and sale of bonds and securities individuals will hold
cash. This is known as speculative motive. The relationship between interest rate and bond price
is negative. When the market rate of interest is high the bond price .will be less. There is a negative relationship between the market rate of interest and speculative demand for money. The speculative demand for money can be written as follows.

The speculative demand curve for money can be drown as follows.

When the market rate of interest reaches or minimum the speculative demand curve will be parallel to ‘x’ axis. This situation is known as liquidity trap. The total demand for money includes precautionary motive, transactions motive and speculative motive. Among these the most important are transactions demand and speculative demand for money.